Software-as-a-Service (SaaS) revenue will grow at five times the speed of traditional packaged software through to 2014, according to an analyst firm.
The SaaS market will be worth $40.5 billion by 2014, up from $13.1 billion in 2009, IDC predicted.
By 2012, less than 15 per cent of new software firms entering the market will ship a product on CD, IDC said, and around a third of all new business software purchases will be delivered through SaaS by 2014.
"The SaaS model has become mainstream, and is quickly coming to dominate the planning - from R&D, to sales quotas, to partnering, channels and distribution - of all software and services vendors," said Robert Mahowald, vice president of SaaS and cloud services research at IDC.
"Enterprise IT plans are rapidly shifting to accommodate the growing choices for sourcing most or all IT software functions, from business applications to software development and testing, to service and desktop management, as SaaS services become available from established vendors and new models for accessing functionality in the cloud creates lower-cost options and more tailored models for consuming IT services," Mahowald added.
The packaged software market's revenue is in decline and a shift towards subscription models will lead to an almost $7 billion drop in worldwide license revenue in 2010, IDC predicted.
The SaaS market is one of the quickest growing segments in the whole IT industry and McAfee recently jumped on board by launching its SaaS Web Protection product.
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